FTSE flat but Arriva perks up on talk French backing to bid

Arriva was a talking point on a flat day for the FTSE 100 index.

By Ben Harrington, Markets Reporter

7:51PM GMT 24 Mar 2010

Arriva traded as high as 762½p during the session after Bloomberg reported that France's transport ministry will back a counter-bid from SNCF, the state-backed transport group. Arriva was recently approached by Deutsche Bahn (DB) about a possible takeover deal.

Dominique Bussereau, the French transport secretary, was quoted as saying: "We are for any project that helps SNCF expand and grow... but there is competition from DB. May the best one win, even if I hope it's SNCF."

However, by the afternoon the French transport ministry appeared to have reversed its position. Dow Jones newswires reported the transport ministry as denying the story. A government spokesman was quoted as saying: "Dominique Bussereau has never spoken on the subject of Arriva and SNCF."

Still, Arriva managed to close up 33½ - 4.6pc – at 750p as dealers hoped the company will become the focus of a bidding war that could see the bus and rail group sold for over 800p.

Overall, the FTSE 100 rose by just 4.25 points to 5677.88 and the FTSE 250 gained 51.02 points to 10081.1.

Related Articles

Anglo American perked up 24½p to £27.42 after JP Morgan Cazenove upgraded the company to "overweight". Fraser Jamieson, analyst at JP Morgan Cazenove, said: "We remain upbeat about the sector's prospects. Much of the bad news has been absorbed and priced in with respect to China tightening (where GDP growth rates are still double digit) and a double dip in the US." Other mining stocks fared well despite weak metals prices. Rio Tinto, for example, climbed 54½p to £38.77.

In the pharmaceutical sector, Shire perked up 31p to £15.09 as problems at its US rival Genzyme continued to worsen. Last year, Genzyme was forced to temporarily close the Boston plant following a viral contamination. On Wednesday, it emerged that the The US government is to take enforcement action and could also fine Genzyme to ensure drugs made at its Allston Landing plant in Boston are up to standard. "The continuing operating difficulties at Genzyme are playing into Shire's hands," said Jeremy Batstone-Carr, analyst at Charles Stanley.

Smiths Group moved 17p higher to £11.56 following its upbeat trading update. Credit Suisse raised its target price on the business, which makes products such as airport security scanners, to £12.50 from £11.20.

Royal Bank of Scotland was one of the best performers after its own stockbrokers gave the whole sector a big push on the back of meeting with Andrew Gerber, the head of the bank's UK mortgage and consumer credit lending business. Salesmen from RBS said the meeting with Mr Gerber reinforced the broker's "buy" recommendation for the whole sector. For example, according to the RBS brokers Mr Gerber indicated that "UK mortgage margins are significantly wider than 2004-2007 levels, which were compressed by the wholesale funded specialist lenders". "They [wholesale funded specialist lenders] have gone from the market and are unlikely to return unless the securitisation markets re-open," said one RBS salesman. RBS put on 0.43 to 44.4p.

Meanwhile, Lloyds Banking Group perked up 1.2 to 64.2p after Michael Helsby, analyst at Merrill Lynch, argued the bank's share price will double to 122p in two years.

On a less positive tack, Aviva slid 17.7 to 383.9p after it traded ex-dividend. A downgrade to "hold" from "buy" from S&P Equity Research also weighed on the stock. S&P said: "We now feel the opportunity for Aviva's shares to perform on the basis of IFRS profit prospects has probably passed for now, and that after the summer Aviva risks being swept up in concerns over the impact of Solvency 2 on regulatory capital."

Elsewhere, Wolseley was hit by a UBS downgrade to "neutral". The shares lost 36p to £15.58.

Among the second liners, housebuilders were in demand following news the Government plans to raised the threshold on stamp duty for first-time buyers to £250,000. Bellway added 40½ to 760p, Persimmon put on 13.7 to 459¾p while Barratt Developments perked up 13.7 to 459¾p.

Bid rumours helped Wellstream finish at the top of the FTSE 250 leaderboard. The talk has been that the group could be of interest to Italy's Saipem - although it has always played down any interest. Brokers also noted that there is large short position in Wellstream shares leading them to conclude that Wednesday's gains could have been short covering. Wellstream shares jumped 41½ to 643p.

UK government bonds fell sharply during intra-day trading as traders voiced disappointment with the lack of clarity over the Government's plans to cut Britain's deficit.

The yield on the benchmark 10-year gilt, which moves in the opposite direction to the prices, almost reached 4pc in the minutes after Alistair Darling began delivering his Budget in Parliament.

"There was a lack of substance and clarity in the deficit reduction plans," explained one senior trader.

Sean Maloney, gilts strategist at Nomura, had a slightly different explanation. Mr Maloney said: "The main factor is that we performed so well in the lead up [to the Budget], so given that the numbers that came out were not much different to the consensus, the market was taking some chips off the table".

Sentiment was also hit by news that Debt Management Office would sell £187bn of gilts in 2010 and 2011. "The market had been expecting about £180bn and we've got £187bn. It's not a massive a difference but its pushed gilts lower," said Francis Diamond, gilts strategist at JP Morgan.